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Non Deduction or Deposit of TDS

Consequences on Non Deduction or Deposit of TDS

Want to Know about Consequences on Non Deduction or after deducting the same fails to Deposit it to the credit of Government’s account.

A deductor would face the following consequences if he fails to deduct TDS or after deducting the same fails to deposit it to the credit of Central Government’s account:-

  • Disallowance of Expenditure
  • Levy of Interest
  • Levy of Penalty

a)  Disallowance of expenditure

As per section 40(a)(i) of the Income-tax Act, any sum (other than salary) payable outside India or to a non-resident, which is chargeable to tax in India in the hands of the recipient, shall not be allowed to be deducted if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.

However, if tax is deducted or deposited in subsequent year, as the case may be, the expenditure shall be allowed as deduction in that year. Similarly, as per section 40(a)(ia), any sum payable to a resident, which is subject to deduction of tax at source, would attract 30% disallowance if it is paid without deduction of tax at source or if tax is deducted but is not deposited with the Central Government till the due date of filing of return.

However, where in respect of any such sum, the tax is deducted or deposited in the subsequent year, as the case may be, the expenditure so disallowed shall be allowed as deduction in that year. 

As per Section 58(1A) (as amended with effect from the assessment year 2018-19), the provisions of section 40(a) (ia) and 40(a)(iia) shall also apply in computing the income chargeable under the head “Income from other sources”.

b)  Levy of interest

As per section 201 of the Income-tax Act, if a deductor fails to deduct tax at source or after the deducting the same fails to deposit it to the Government’s account then he shall be deemed to be an assessee-in-default and liable to pay simple interest as follows:-

(i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and

(ii) at one and one-half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid.

c)  Levy of Penalty

Penalty of an amount equal to tax not deducted or paid could be imposed under section 271C .

Remedies available

A deductor who fails to deduct the whole or any part of the tax on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee-in-default in respect of such tax if such resident –
(i) has furnished his return of income under section 139 ;
(ii) has taken into account such sum for computing income in such return of income; and
(iii) has paid the tax due on the income declared by him in such return of income,

and the deductor furnishes a certificate to this effect in Form No.26A from a chartered accountant.

Hope you will under stand what consequences you may face for Non Deduction of TDS or after deducting the same fails to deposit it to the credit of Central Government’s account

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